Monday, December 29, 2008

North Carolina Isn't the Problem.

My brother, who lives in North Carolina, tipped me to a story in the News & Observer about a new micro distillery that is being proposed for Chapel Hill. The distillery's proprietor, Scott Maitland, operates a local brew pub called Top of the Hill. The article was written by a News & Observer staff writer, Jesse James DeConto. It was published today. You can read it here.

I wrote to Jesse the following:

Dear Jesse,

I enjoyed your article about Scott Maitland’s proposed distillery and micro distilleries in general. I am a writer who specializes in American whiskey and I have been following the development of the micro distillery industry with interest.

Mr. Maitland may have given you the wrong impression about North Carolina’s liquor laws. Everything was explained correctly, but it gave the impression that North Carolina is unique, or at least unusual and out of the mainstream in its approach. North Carolina is a control state but the issues Mr. Maitland complains about are pretty much universal. In both control and license states; the producer, distributor and retailer must be separate entities. There can be no cross-ownership. Producers may not sell directly to retailers. Each state is slightly different, and the differences can make you crazy, but the three-tier distribution system is the norm in all 50 states. The exception is control states where the state is both distributor and retailer (for off-premise sales). The state can do cross-ownership but non-state entities cannot.

In Kentucky and Tennessee, where 99% of America’s whiskey is produced, if a distillery wants to sell its products to tourists in the distillery’s gift shop, it must sell them to a distributor, who sells them back to the retailer entity the producer has established. In Kentucky and Tennessee, the state made a special exception to the cross-ownership prohibition to allow even this, since in this case the producer is also the retailer. Most states also exercise some control over prices at every level.

It’s all about taxes. Every state, as well as many cities and counties, takes a big rake off of all distilled spirits sales. Distilled spirits, dollar for dollar, are one of if not the most heavily taxed consumer product on the market. This is not unique to North Carolina. Every distiller’s biggest tax payments go to the federal government through a tax on production known as the Federal Excise Tax. In North Carolina, that mark-up between what the ABC pays the producer and what it charges retailers is essentially tax.

Mr. Owens, who I consider a good friend, can also be very misleading on this subject. His emphasis on brewing as a precursor to whiskey making is his personal vision, not universally shared. Among all of the Master Distillers at the major American whiskey producers, only one has ever worked as a brewer.

If you follow Bill’s point of view a little further, he believes micro-distillers should make malt whiskey, not bourbon or rye, because malt is the easiest grain to ferment and distill, and because you can even buy wash from a brewery and avoid fermentation altogether. Bill takes these positions despite the fact that they are contrary to 200+ years of American whiskey-making tradition.

4 comments:

Although Jesse did a good job, I would like to make clear that I have never complained about the ABC laws in North Carolina or the alcohol laws at the Federal level. I have created my business plan as a result of those laws and will operate my business as a state-wide wholesaler as appropriate.

However, the first question I always get asked is "so, will you sell your distilled product directly?" I answer no, I have to sell it to the state ya da ya da yada......and people, including Jesse, think that is strange.

It is not. It is the law. I am cool with it.

With respect to the brewing/distilling relationship. I concur with Bill. Mastering brewing gives one an edge in creating a superior final product. However, one does not need to be a commercial brewer to master the brewing skills necessary to become a top notch distiller.

Greg Davis, Master Distiller at the Tom Moore Distillery, is the only Master Distiller at a major whiskey producer who started his career as a brewer. He makes the point that all of the flavors in the distillate are created during fermentation. Distillation doesn't create flavors, it just selects and concentrates them.

Obviously, the micro-distiller who buys wash from a brewery both acknowledges the importance of this stage and by-passes it, a shortcut that makes the claim of "craft" debatable.

It also should be noted that while fermentation is occurring in both cases, there are many important differences between distiller's beer and beer beer, which the fledgling micro-distiller ignores at his or her peril.

Thanks for the excellent discussion here. I live in a rural area in central North Carolina and have been looking into micro distilling. I'm in particular looking for resources where I can begin to learn the craft, having been a dedicated amateur brewer for many years. I'm still exploring what product I might want to produce, given the fact that the market seems to be flooded with burbons, whiskeys and vodkas currently. Can you point me in the direction of any books or resources I might find useful?